Do Labour Shortages Exist in Canada?

The question of whether Canada’s economy suffers from labour shortages has been viewed quite differently by employers and economists. The business community almost universally identifies shortages as a problem, especially for skilled workers. Economists are more skeptical, recalling past warnings of shortages that did not materialize while noting that business forecasts of shortages could be motivated by the self-interest of lobbying for measures that boost labour supply and put a lid on wage costs.

This paper attempts to reconcile these two seemingly opposite views. First, it concludes that employers, drawing on their experience with shortages before the recession, have been more innovative in adopting strategies to increase labour supply. These include encouraging employees to delay retirement and work longer hours. Economists note that the track record of predicting shortages based on the need to replace retirees is poor: Europe today is an excellent example of an older society without a shortage of labour.

The next point is the existence of a record gap between unemployment for adults and youths. The reasons for the high level of youth unemployment partly reflects the skills youths have acquired, especially their marked shift from community colleges to university education over the past decade.

Finally, national wages have not accelerated markedly due to lingering slow growth in central Canada. This has masked a clear upturn in wages in most Western provinces and in Newfoundland. Firms have also resorted to a wide range of non-wage benefits to induce people to join them, partly to avoid having to pay more for their incumbent employees.